25 May 2015
Monetary policy is second-line defense against bubbles – Fed’s Mester
FXStreet (Mumbai) - Federal Reserve Bank of Cleveland President Loretta Mester, in her speech at Iceland on Monday, said it is better for authorities to use regulatory and supervisory powers to deal with final imbalances, rather than monetary policy.
“I would opt to use the macroprudential tools as the first line of defense, since they can be more targeted to the markets and institutions where the risks are emerging,” she said. Mester further added, “I do think that when we are making policy decisions, we should be cognizant of the linkages between our non-conventional monetary policy of an extended period of essentially zero interest rates and financial stability.”
The policymaker refrained from making specific comments on the monetary policy or economic outlook as she focused on other issues concerning the banking sector.
“I would opt to use the macroprudential tools as the first line of defense, since they can be more targeted to the markets and institutions where the risks are emerging,” she said. Mester further added, “I do think that when we are making policy decisions, we should be cognizant of the linkages between our non-conventional monetary policy of an extended period of essentially zero interest rates and financial stability.”
The policymaker refrained from making specific comments on the monetary policy or economic outlook as she focused on other issues concerning the banking sector.